Quick Facts

Slovakia’s economic freedom score is 67.2, making its economy the 50th freest in the 2015 Index. Its score has increased by 0.8 point from last year, with improvements in freedom from corruption, business freedom, and labor freedom outweighing declines in monetary freedom and the management of government spending. Slovakia is ranked 22nd out of 43 countries in the Europe region, and its overall score is higher than the world average.

Economic freedom has not fared as well in Slovakia as it has in other Eastern European countries in recent years. In fact, over the past five years, economic freedom in Slovakia has declined by 2.3 points. Score declines have been concentrated largely in the fiscal and regulatory spheres, led by drops of 8.0 points in the control of government spending and labor freedom.

Slovakia’s basic economic environment still needs improvement. The rule of law is weak, allowing corruption to flourish, and there is a lack of transparency in the government and state-owned sector. Despite some progress, business regulations remain inefficient, and labor market rigidity has prolonged the downside of business cycles. The financial crisis and the weak regional environment have undermined public finances. The government’s long-term commitment to economic freedom must be renewed to boost prosperity and competition.

Background

After Slovakia gained independence in 1993, market reforms made it one of Europe’s most attractive destinations for capital. Slovakia entered the European Union in 2004 and has been part of the eurozone since 2009. Andrej Kiska was elected president in 2014 and reappointed Robert Fico, who had been serving since 2012, as prime minister. Fico has enacted new measures aimed at reducing tax evasion and fraud. In 2014, there were divisions within the government about the role of NATO and the correct response to the crisis in Ukraine.

Corruption is significant, notably in public procurement and health care. Many state-owned companies do not publish even basic information. The constitution provides for an independent judiciary, but notwithstanding some reforms, the court system continues to be burdened by corruption, intimidation of judges, and a significant backlog of cases. Secured interests in property and contractual rights are enforced.

Slovakia’s top individual income tax rate is 25 percent, and its top corporate tax rate has been reduced to 22 percent. Other taxes include a value-added tax and a property tax. Tax revenues equal approximately 28.5 percent of domestic income. Public expenditures amount to 38.7 percent of gross domestic production, and government debt equals 55 percent of GDP.

Despite progress in streamlining the process for launching a business, other time-consuming requirements reduce the efficiency of the regulatory system. Rigid labor regulations hamper dynamic employment growth. In 2013, the government adopted the new EU agricultural policy for 2014–2020 that will reduce per hectare subsidies for large farms but increase them for smaller ones.

EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. Slovakia generally treats foreign and domestic investment equally under the law. The relatively well-regulated financial market continues to grow. The predominantly foreign-owned banking sector is well capitalized, but the recently doubled bank levy discourages dynamic lending.